Among other things, Mohr says the pipeline, if built, would give refineries in Quebec and New Brunswick a reliable supply of cheaper Canadian crude, while displacing more expensive foreign imports.

By enhancing the economic viability of refineries in Montreal, Quebec City and Saint John, Energy East would also make future refinery expansions more likely. And most importantly – at least for Western Canada’s oilpatch – Energy East would finally give Canadian producers access to global markets.

Surprisingly, Mohr reckons the cost of shipping crude to India from a proposed $300 million deep-water marine terminal at Saint John – one that would be owned and operated jointly by TransCanada and Irving Oil – would amount to little more than $4 US per barrel. Once the largest oil supertankers are able to access the terminal, that cost would fall to just $3 a barrel,s he says.

Here’s an edited version of Mohr’s full commentary:

TransCanada’s proposed Energy East Pipeline project would open up valuable new outlets for Alberta and Saskatchewan crude oil in Eastern Canada and in export markets, via marine tanker loading terminals in Quebec City and Saint John, New Brunswick.

The Energy East Pipeline Project offers the following advantages:

(1) The line would allow access to less expensive and more secure domestic crude oil, allowing displacement of imports into the Suncor Energy and Ultramar (Valero) refineries in Montreal and in Levis (near Quebec City) as well as the large Irving Oil refinery in Saint John. (2) Greater access to stable supplies of domestic oil would improve the financial viability of current refineries and could eventually encourage development of a larger domestic refining industry in Quebec and Atlantic Canada. History shows that pipeline developments — linking crude oil supplies to markets — often precede refinery expansion. (3) The line could provide vitally needed new export outlets for Western Canadian oil — to Europe and, most interestingly, to India (a growth market) as well as the U.S. — accompanied by expanded port and marine service-sector activity near Quebec City and Saint John.

The economics of Energy East are compelling. Initial flows through the line to Montreal and Quebec City would likely involve light crude oil from Western Canada — conventional, light, tight oil or upgraded light synthetic crude oil from the Alberta oil sands. Had the pipeline been available in the first half of 2013, the cost of Edmonton Par crude from Alberta delivered to Montreal/Quebec City would have been $14.85 US per barrel cheaper than imported Brent crude.

The differential between light oil prices in Alberta/Saskatchewan and Brent has narrowed in July, given the rebound in international levels. However, a significant discount on WTI could reemerge and other light crudes in the Houston area could start to be discounted as early as late 2014, given the remarkably rapid development of the North Dakota Bakken and light oil from the Eagle Ford and Permian Basin (in Texas).

Production from the North Dakota Bakken is expected to soar from today’s 780,000 barrels a day to 1.6 million barrels a day by 2020. Forecasts call for much more light, than heavy oil, supply across the United States and Canada over the balance of the decade. Alberta bitumen will be in relatively tight supply and in strong demand in the Houston-area refining market.

Refiners in India have shown considerable interest in importing Alberta blended bitumen. Estimated tanker charges from Quebec City and Saint John to the west coast of India average a mere $4.20 US per barrel in a Suezmax vessel. A marine terminal at Saint John would be ice-free year round and could accommodate very large crude carriers, cutting tanker costs to India to only $3 per barrel. Based upon the price of Saudi Arabian heavy delivered to India, we estimate that Western Canada Select (Alberta’s benchmark grade of crude) could have earned a much higher price in India than actually received in the first half of 2013.

The development of overseas export markets remains vitally important for Western Canada’s oil industry. With output in Alberta expected to climb annually by 225,000 barrels a day from 2013 through 2022, plus growth in Saskatchewan, in an environment of rising U.S. domestic supplies, developing low-cost transportation infrastructure to access overseas export markets is critical.

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